Investment advise needed

[Amber Straub]

Hello all, 

I am a newer investor who currently holds two multi fams going really well. This post is for a friend who came to me seeking advice and I thought I could extend to this amazing community . 

My friend has a 4/3 home in Fort Myers FL, who is in the middle of a divorce. 

Current home value: $523,000

Amount owe: $263,000

Equity: $259,000

Interest rate/loan: 2.25%/30 year

obviously refinancing would be a hit with that interest rate, considering either selling or HELOC and investing into multi fam via house hacking.

Was wondering if anyone has any input or other advice! 

Thanks in advance! 

[Stetson Miller]

Hi @Amber Straub, 

Is the loan assumable? This could be a big selling point with an interest rate that low. Regarding the house hacking purchase, are they looking to stay local? There's a few different markets here that would be optimal for that strategy depending on price point and the specific areas that they're looking in

[Doug Smith]

Hi Amber, What is your friend's goal? Do they need to buy their soon-to-be former spouse out? If so, how much do they need to do that? Is the former spouse on the loan for the home? Are they trying to pull cash-out? If so, what for? There are tons and tons of questions I would have. I tell clients to think of it as if you're going to the doctor for an exam. People don't walk in and say "I need you to prescribe me X" without the physician asking a lot of questions, drawing blood, and doing other tests. A good lender or financial planner is going to do something similar. Really understanding your friend's situation is important to giving good advice. I would really need to understand more to offer significant help. 

[Amber Straub]

Thanks Doug! Sorry I forgot to add valuable information. Yes he has to buy the spouse out, either through sell, HELOC, or refinance and then the question being with the equity how would you best utilize that for starting into real estate investing?

[Wale Lawal]

@Amber Straub

Your friend's situation can be divided into several options, each with pros and cons. One option is to keep the home and use a Home Equity Line of Credit (HELOC), which can preserve the low interest rate and leverage equity for investments. Another option is to sell the home and invest, but may not maximize cash flow. Another option is to rent out the property, but may limit income generation.

Good luck!

[Danny Gonzalez]

The first thing that comes to mind is what is your friend's goals in real estate?  Is she wanting to live off it with the monthly cashflow?  Does she need a lump sum of cash now that she's getting divorced?  Also, the other thing to consider is what is the potential rent from that property?

The reality is that she has a lot of equity and options, which is a good thing. Knowing my goals, which are to hold on to real estate as long as I can, I would go the HELOC route. You keep the low interest payment, yet still capture the equity to be able to buy more properties.

Just my 2 cents.  

[Ashish Acharya]

I suggest selling and avoiding the capital gain tax under section 121 so your friend can start fresh.

Your friend has several options to leverage the $259,000 equity from the Fort Myers home during the divorce. Selling the house would provide a clean break and cash out the equity for investment in a multifamily property. Interest rates can always be refinanced.

[Gino Barbaro]

@Amber Straub

What an amazing rate. talk about cheap money. You could try to do a 1031 and roll the proceeds into a house hack.

Your idea of a HELOC is quicker and easier, but you'll get less proceeds.

Good luck

[Dave Foster]

@Amber Straub. First I would see if they would qualify for a 121 exclusion. Have they lived in the property for two out of the previous five years? If so they could each take the first $250k of capital gains tax free. If the property has been used for investment. Then each of them could decide to do a 1031 exchange, where they could take their share of the sale, and defer it into another property. The IRS will agree to go with whatever the divorce decree states.